Magazine article Real Estate Issues

Thoughts on the Relationship between Instititional Investors and Real Estate Emerging Managers

Magazine article Real Estate Issues

Thoughts on the Relationship between Instititional Investors and Real Estate Emerging Managers

Article excerpt

INTRODUCTION

THE ONGOING INDUSTRY-WIDE DISCUSSION or EMERGING manager investment is a topic this author has followed closely and discussed extensively with a number of industry participants. In April 2013, while presenting data from the Institutional Real Estate FundTracker database, John Hunt of Institutional Real Estate, Inc., noted: "There are 819 funds in the market today, trying to raise $250 billion. Of those 819 funds, 297 funds (36 percent) are first- or second-time funds." This highlights the challenge faced by both emerging managers and institutional investors. Investors often lack the necessary resources to sort through the volume and see investing in first- or second-time funds as exceeding their risk appetite. It isn't easy to stand out in the crowd. This article suggests several opportunities for behavioral and business model changes that could foster more and better relationships between institutional investors and emerging managers.

BENEFITS OF EMERGING MANAGER INVESTING Investor Perspective

The institutional investment community generally recognizes several benefits of investing with emerging managers. These benefits include economic considerations such as obtaining exclusive rights to a unique pipeline of investments; an opportunity to identify best-in-class emerging managers, typically working directly with the firms principals, who maintain "hands-on" investing and asset management responsibility; forming long-term relationships with the next generation of real estate investment managers; and an opportunity for those who provide programmatic equity capital to generate abovemarket terms and economics because of the scarcity of capital allocated to individual emerging managers.

About the Author

John J. Baczewski, CRE, CPA, is president of Real Estate Fiduciary Services, LLC (REFS), Ipswich, Mass.. which provides independent fiduciary services and consulting to institutional investors. He has nearly 30 years of experience in institutional real estate investment, finance, management and monitoring, as toell as w years of'Big Four' public accounting experience.

Baczewski's institutional real estate experience includes independait fiduciary services, investment strategy development, portfolio and asset management, due diligence and transaction management, operational reviews, accounting, performance measurement, client service and capital formation. He chairs the REIS Board, which promulgates information standards for the institutional real estate investment industry, and formerly served on the REIS Council.

Baczewski is a Counselor of Real Estate,- a fellow of the Homer Hoyt Institute, a former editorial hoard mm her of The Institutional Real Estate Letter-North America and currently serves as a director of Benchmark Research Technologies, an independait research and strategic consulting firm serving the real estate industry. He participates in the National Council of Real Estate Investment Fiduciaries, Pension Real Estate Association, American Institute of Certified Public Accountants, CFA Institute, the Boston Security Analysts Society, and the Massachusetts Society of CPAs.

A graduate of Merrimack College, Baczewski earned a bachelor of science degree in business administration. He has published several articles, and speaks frequently on pension real estate issues. Baczewski is a certified public accountant, licensed in Aiassachusetts and New Hampshire.

In addition to economic considerations, institutional investors can achieve several portfolio construction benefits through establishing an emerging manager investment program. These include capital diversification across a broader pool of operators from early stage to more established, including minority and women-owned business enterprises; and an opportunity to satisfy specific unmet portfolio construction objectives such as accessing a particular property type or building a specific geographic concentration. …

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